Supply chain finance – long time coming

Supply chain finance came to the fore as the recession bit. Companies were concerned that suppliers were running into cash flow difficulties, which could in turn threaten the inbound supply chain.

It made sense for large organisations to support finance schemes that helped suppliers improve their cash flow and keep the wheels of business turning.

But now the Forum for Private Business, which represents small and medium sized businesses is suggesting that SCF schemes are being used simply to allow large companies to extend their payment periods.

In particular, it said that Mars UK has started using a supply chain finance scheme to cover poor payment practice.

Chief executive Phil Orford says:We are concerned to learn that Mars UK is extending payment times up from 60 to 120 days for some of their suppliers.

Lengthy payment terms can be extremely damaging for small businesses. While the supply chain finance scheme allows them to be paid quicker, it is at a cost. If suppliers want the full invoice they are entitled to they will have to wait 120 days.

In fact, the FPB has created a Late Payment Hall of Shame. It includes Debenhams and Monsoon, both of which, it says, have extended payment times in the past year.

Orford argues that while the Forum of Private Business is a great supporter of supply chain finance schemes in the right circumstances, they should not be used as a justification for a company extending payment times to its suppliers.

Mars has yet to respond to the FPB. But the case raises all sorts of questions about when a company is entitled to extend its payment terms. And what will business secretary Vince Cable make of it? His department is currently going through the responses to a consultation on this issue and could strengthen prompt payment legislation.